Implementing the NBN study: What we know

Within weeks the up to $53 million Federal Government-commissioned NBN implementation study is due to be delivered by lead advisers KPMG and McKinsey, but big questions remain: what is it, who's behind it and what impact will it have on the NBN Co's actual plans to build the network?

During the Federal Government's Broadband Future Conference in Sydney last December, which drew 400 of Australia's "who's who" of broadband, Prime Minister Kevin Rudd and Minister for Communications Stephen Conroy trumpeted its NBN progress, having just days prior announced its $250 million regional backhaul blackspots deal and new early deployment towns in Tasmania.

The announcements flowed freely during the final weeks of 2009, signalling progress in spite of its all-important implementation study remaining incomplete.

There's little doubt that the study's findings will be important. At the conference, NBN Co's chief Mike Quigley said it was vital to the difficult task of estimating the costs of household terminating devices, points of interconnection, backhaul and network migration.

"In preparing a business plan, the two factors that dominate estimates are the deployment costs ... and the revenue plan," he said. "It is quite sensible to work through the details of product definition, pricing architecture, network design and build-planning before trying to assemble a business case on which one could rely. Sometimes the data one needs is just not known until you do that work."

He went on to congratulate the government for its "sensible" idea to "set up a dual-stream approach". "NBN Co and McKinsey and KPMG have focused on different aspects of the project," he said, handing the government credit for what is believed to have been an idea driven by him.

But then again, he would, given Rudd and Conroy were sitting four metres away from the lectern. "Normally start-ups have an opportunity to stay under the radar until they get themselves established. This has not been possible for us," said Quigley.

The impact this dual-stream approach has had on the study's goals and scope is not yet known; and there appears to be uncertainty over whether the NBN Co or Department of Broadband Communications and the Digital Economy (DBCDE)is controlling it. One source said that the lead advisers would report to the DBCDE, but that now Quigley had taken greater control over it, while others put its ownership with NBN Co.

There's also the question of what the final report will contain. The government outlined at the outset that an "interim report" would be due in a very short time-frame. Eight days after awarding it to KPMG and McKinsey & Co, the government received its interim report.

One reason why it may have actually been able to hand a meaningful report within eight days, as managing director of Nextgen Networks Phil Sykes points out, is that much of the ground work — for example, data collection — had commenced in 2008.

"The department has sought and received a substantial amount of industry and stakeholder information and views over the last two years," says Sykes. These include the government's April 2008 call for proposals to roll out and operate a National Broadband Network, its early 2009 request for information on Regulatory Reform for 21st Century Broadband and most recently the tender process for Regional Backbone Blackspots Program.

And by 19 August the government had in hand its new Telecommunications Legislation Amendment (National Broadband Network-Network Information) Bill 2009, which broadened the government's access to include non-Telstra networks, for example, energy, rail and water utilities.

Following the decision to kick off the much more ambitious $43 billion NBN proposal than the first $4.7 billion failed proposal, the line-up of people who would influence the direction of the NBN would change significantly.

Despite the importance of the NBN "expert panel" that recommended the government reject all six NBN proposals in April 2009, just one member is known to have been sought out for advice from the NBN study's lead advisers — former Australian Communications Authority boss, Tony Shaw. Other former panel members include John Wylie, chief of investment outfit Lazard Carnegie Wylie, Allphones chairman Tony Mitchell, University of Melbourne professor Rod Tucker, and Treasury secretary Dr Ken Henry

Fellow former panel member, mobile telecommunications authority, Reg Coutts, says his attempts to contact the advisers last year proved unsuccessful. Indeed, he like many others that appeared to be at the centre of the NBN, have since been left on the outer.

But McKinsey & Co is known to have brought out some of its own internal heavy hitters to assist with the advisory process — namely, German-based gun, Korean-born Stanford electrical engineering graduate and wireless boffin, Dr Seong Taek Chung. With a number of wireless technology patents to his name, Chung was known to have inspected Australian wireless deployments in the latter part of 2009. It's also believed US telco consulting specialist Telcordia had been contracted for the study.

Chung was not alone. Former Macquarie Global portfolio adviser, and now a McKinsey consultant, Joy Xuan, along with DBCDE's internal lead for the study, Mark Heazleatt, had kept Chung company during site visits in late 2009.

The lead advisers have also been armed with KPMG's Jochen Bonitz whose technical, financial and operational expertise has been welcomed by those representing the carrier space. Bonitz's past includes his time as Commonwealth Bank of Australia's lead equity advisor for ICT investments until 2005, and earlier as general manager of Air New Zealand's eBusiness division. Now he is KPMG's corporate sector lead ICT sector clients, and was viewed by at least two of those interviewed for the study as a major bonus.

The advisers, on KPMG's side led by partner Malcolm Alder, had developed a dense schedule of interviews across November and December last year, which were conducted via site visits and teleconferences, as well as canvassing the opinions of hundreds of industry stakeholders.

Internode's carrier relations manager John Lindsay and Primus boss Ravi Bahtia both praise Bonitz's role in the study. "I was initially sceptical of KPMG and McKinsey but from what I've seen, I think that scepticism was wrong," says Bahtia, adding that he was "very pleased" Bonitz was involved.

Lindsay was relieved Bonitz "understood what he was talking about". He said he had warned that there may be major obstacles at the smaller end of Telstra's wholesale customer base in transitioning households from Telstra's PSTN services to fibre, due to mismatching technologies. It's been suggested by Conroy the task will be simple, telling ITNews that it would be a matter of someone from the NBN Co — prior to ripping and replacing the copper with fibre — knocking on your door and saying, "I've come to connect your fibre". "And that transfers customers from Telstra across to NBN Co."

That may be the case for Telstra's own customers; however, Lindsay said he explained to the lead advisers that for Telstra's wholesale phone customers the task of porting numbers across will not be easy.

"It will be very challenging for retail service providers because there are lots today that provide only internet, or internet and phone based on wholesale line rental from Telstra. And, in the NBN world, unless some kind of wholesale line-rental replacement provider emerges, it will be difficult for small providers to make use of the NBN to compete with large service providers," he said, warning that it could end up with Telstra emerging as the wholesale provider to the NBN Co.

What's not clear yet is the future for the study and its findings. Lindsay said he felt sympathy for NBN Co chief Mike Quigley, who faced potentially three sources of information covering similar terrain, including NBN Co's own research, the lead advisers', and of course, industry body the Communications Alliance.

"Essentially you have three not-quite-independent organisations, all trying to work out how one might go about making an NBN happen. I feel a little sorry for Mike Quigley. His organisation is being second-guessed by two others," said Lindsay.